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Eight reasons why ULIP should be there in your investment portfolio

Reasons to buy ULIP's in your investment portfolio
August 11, 2023

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Making the right financial decision is one most crucial task in life as it shapes the future not only for you but for your family too. Hence picking the best investment plans is surely worth a detailed understanding of your needs and the products available in the market.

For quite some time now, Unit Linked Insurance Plan (ULIP) is ruling the popular choice of people looking to invest. To figure out why, it’s important to understand what is ULIP and how adding the ULIP plan to your investment portfolio can bring you benefits.

What is ULIP?

The ULIP plan is a financial instrument that doubles up as life insurance as well as an investment opportunity. A part of the premium you pay goes to the life cover while the remaining money is invested in market-linked funds to generate returns for you.

Let us now focus on the top eight reasons why the ULIP plan should be included in your investment portfolio.

Dual benefits: 

The ULIP plan is a two-in-one product that combines the facilities of a life cover and an investment avenue. Here, if the policyholder dies within the policy term, the nominee gets a lump sum as the death benefit. Alternatively, if the policyholder survives the entire term, he gets the fund value which he can utilise for his life goals like buying a house, marriage or a child’s education.

Easy purchase and renewal: 

Purchasing ULIP plans and their renewal is pretty easy. All you need is to visit the website, fill up the form and submit relevant documents, and make the payment. 

Tax exemption: 

A ULIP plan is eligible for tax benefits as per the Income Tax Act 19611. You can get exemptions from the tax for premium payments up to Rs 1.5 lakhs per annum under section 80C. The fund value at maturity is also eligible for tax benefits subject to section 10 (10D)2.

Flexible Fund Switch: 

Depending on the changing risk appetite and financial goals of the investor, the ULIP plan invests money in equities, debt funds or a mix of both. It offers flexibility in the portfolio structure and allows fund switches multiple times a year. So, if initially, the investor is willing to take more risk, he can start with investing in equities only. Over time, if he chooses to play safe, he can always have a bigger share of debt funds in his portfolio or invest in debt funds only.

Easy top-up: 

As your earnings grow, it’s easy to increase the investment in your ULIP plan. There’s an easy top-up option available.

The power of compounding: 

The longer you invest in a ULIP plan, the higher your returns. This is because this popular financial tool uses the power of compounding to increase the net worth of your fund.  

Early bird advantages: 

ULIP plans allow you to enjoy a life cover and an investment opportunity with a single premium. So, the earlier you start, the lower the premium amount and the longer the investment horizon available. By nature, ULIP plans bring higher returns in later years after the five-year lock-in period is over and returns grow as time passes. So, if you start young, it’s indeed a win-win situation as you pay less and gain more.

Knowing the benefits, by now it’s surely clear what ULIP is and why it’s essential to have it in your investment portfolio, right?

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ARN - ED/07/23/3258

1. Subject to conditions specified u/s 80C of the Income tax Act, 1961.

2. Subject to conditions specified u/s 10(10D) of the Income tax Act, 1961.

The afore stated views are based on the current Income-tax law. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.